Grab has announced that it will go public through a merger with a blank cheque listed entity, Altimeter Growth Corp. If successful, Grab will end up a publicly listed company on NASDAQ underneath the ticker \”GRAB\”. Valued at approximately US$39.6 billion, this can represent the largest SPAC merger offer the world.
In case you missed a previous article, here's a brief recap on which SPACs (a.k.a. black cheque companies) are: SPACs raise public capital through an Initial Public Offerings (IPO) with the aim of acquiring or merging having a private entity (such as Grab). Within two years (approximately), a SPAC merger (or acquisition) will need to occur before the funds are liquidated to the shareholders.
The increased activity inside the SPAC mergers space is on the back of the US's SPAC boom that started in 2021. Based on Refinitiv, there was a record number of 256 SPAC listings in the US in 2021, almost 3 times the number of deals in 2021. As of March 2021, the amount of SPAC listings has eclipsed 2021's numbers, with 264 SPAC listing.
Currently, there more than hundreds of SPACs looking to acquire companies within their allocated 2-years' time frame. With a race against time, US SPACs happen to be shifting their sights to Southeast Asia to consider potential merger or acquisition deals.
Why Perform some Companies Like Grab Prefer Listing Through SPAC?
Apart from Grab, there's been coverage of similarly prominent regional start-ups looking to merge with US SPACs. These companies include One Championship, Propertyguru and Traveloka.
Despite other listing options for example conventional IPO and direct listing, there are some reasons why companies like Grab may prefer going public via a SPAC listing.
#1 Higher Deal Certainty
In 2021, we witnessed among the largest IPO pull outs in history when the WeWork debacle happened. With an IPO valuation of US$47 billion, when WeWork worked out with the usual pre-IPO roadshows providing extensive financial disclosure towards the public, investors were not convinced. Subsequently, the overall market scrutiny and eventual expose caused the IPO to fall through. These days it is also seeking to go public using a SPAC merger with a valuation of US$9 billion.
In comparison, a SPAC merger isn't as exposed to the market and regulatory risks because it does not need to undergo as many pre-IPO activities. Regardless, a SPAC merger would still need to pass through regulatory requirements set out by the Securities and Exchange Commission (SEC), which is a hybrid of corporate merger and listing regulations (more about this below).
#2 Shorter Time Frame For Listing (And Potentially Cheaper)
Another pain reason for conventional listing pathways may be the length of the process. According to KPMG, a typical IPO process can take about 12 to 1 . 5 years while a SPAC merger can happen within 3 to 6 months.
With IPOs taking Three or four times longer, it can result in significant opportunity cost to high growth companies as they have to divert resources and concentrate away from business growth.
Furthermore, IPOs can be relatively more expensive due to higher cost of marketing (more roadshows) and the 4% to 7% fees on issue price charged by underwriters. By going through the SPAC merger, Grab can save significant listing expenses.
#3 Advantages of Listing In The US And Working With SPAC Sponsors
In addition, the SPAC merger gives the likes of Grab access to the US markets and investors. Combined with the sheer number of SPACs looking for merger and acquisition opportunities, an additional advantage of listing in US in comparison to regional exchanges are potentially higher valuations and liquidity. With platform companies benefitting in revenue growth in the pandemic, capitalising on the current positive sentiments for growth would be opportune.
Besides, through the merger, Grab is going to be partnering with Altimeter Capital Management, that is an experienced Silicon Valley tech-based investment firm. Altimeter wouldn't only provide their expertise, but they would also assist around the merger process.
Based on Grab's investor slides, Altimeter Capital will commit US$750 million to the fundraising and an additional US$500 million as backstop for SPAC shareholders that wish to redeem cash instead of joining the merger. The support from Altimeter would further help in solidifying the merger deal for Grab.
What Investors Have to know About SPAC Merger Process
#1 SPAC Merger Company Will Have To Fulfil SEC Documents For Listing In A Tight Time Frame
As shown above, currently Grab has transpired through the necessary merger agreements. Even though the merger is confirmed, Grab listing requirements are still under scrutiny as they continue to file the necessary financial reports for SEC's approval. This process usually takes up to three to five months.
#2 Expect Dilutions From Warrants Of Original SPAC Investors
Given as a sweetener for initial subscribers of SPACs, a typical unit of a SPAC includes a share along with a proportion of warrant. A whole warrant gives the holder the authority to redeem shared directly from the issuer at a fixed price. Based on Altimeter Growth SPAC, per SPAC unit, the subscriber will get one share and one-fifth of a warrant.
When a merger is confirmed, the SPAC shares can be diluted by two sources, public warrant and founder (or \”promote\”) warrant. However, for Grab's IPO, Altimeter has committed to lock up their founder shares not less than three years.
#3 Currently, SPACs Do Not Have The very best Post-Merger Track Record
While the boom of SPACs is relatively recent, there have been closed merger deals available on the market that investors can track for historical performance.
According to Bain, from the 121 completed SPAC merger deals, more than 40% of them were trading below their $10 SPAC IPO price. SPAC post-merger deals from 2021 to 2021 underperformed significantly compared to their S&P counterparts. However, there are signs of SPAC deal quality improving over time. Post-merger deals closed in 2021 actually perform better than their S&P IPO counterparts. Still, individual performance from the merger deals fluctuates and there's a need to track for the long term to higher measure SPACs post-merger performance.
Investors would have plenty to look for in the following months as there are still many similar companies in the region showing interest to enter the general public markets through SPAC.